Tommy O’Connelll Case Study Essay
1. Compare and contrast the professional roles of an audit senior and a staff accountant. In your analysis, consider the different responsibilities assigned to each role, the job-related stresses that individuals in the two roles face, and how each role contributes to the successful completion of an audit engagement. Which of these two roles is (a) more important and (b) more stressful? Defend your choices. An audit senior leads client audit engagements, which include planning, executing, directing, and completing the audit of the financial statements.
The following are some of the professional roles of an audit senior on an engagement: •Researching and analyzing financial statement and audit related issues. •Acquiring a working knowledge of the client’s business. •Interacting with key client’s management to gather information, resolve problems, and verify audit evidence. •Recognizing critical issues and developing necessary skills needed to solve problems. •Planning audit procedures, executing the procedures, and allocating related jobs to the staff accountants. Supervising and training new-seniors and staff accountants. •Preparing for quick and timely evaluations of staff accountants. The Staff Accountant has the most common duties and responsibilities typically relating to low risk audit areas:
•Acquiring a working knowledge of the client’s business. •Assisting the audit seniors when he or she is planning the audit procedures. •Executing the audit procedures which are assigned to the staff accountants. Interviewing audit client’s employees, reviewing related documents, gathering evidence, and verifying the management’s assertions. •Reporting the process of their assigned job to the audit senior in a timely manner. To accomplish these roles, both the audit senior and staff accountant should obtain a thorough understanding of PCAOB, GAAS, GAAP, SEC regulations and the audit firm’s common audit procedures and techniques. Generally, the persons who are in the higher positions have more responsibilities and stress than the persons who are in the lower positions.
As an audit senior, he or she is responsible for fulfilling the final duties on the audit result; in fact, he or she has the responsibility of not only supervising, training, and mentoring new seniors, staff accountants, associates and interns on the audit process, but also reviewing and guiding the work of the people reporting to him/her, and performing their own work which has been assigned to them by managers or partners which typically involve higher risk areas.
If the audit report is misleading or expressing the wrong opinion because of the inefficacy of the staff accountants, the primary responsibilities would be attributed to the audit senior not the staff accountants who actually performed the work. This is because the audit senior signs off on the audit documents stated that he reviewed, supervised, and monitored the work of the staff accountants. The managers and partners on the job also review the workpapers but assume that they are a high quality because the senior has already reviewed and signed off on them.
Therefore, I think that audit senior’s role is more important and stressful than the staff accountant’s. 2. Assume that you are Tommy O’Connell and have learned that Carl Wilmeth will be working for you on the Altamesa audit engagement. Would you handle this situation any differently than Tommy did? Explain. Personally, if I were Tommy O’Connell and had learned that Carl Wilmeth would be working on the Altamesa audit engagement, I would be concerned. The reasons are not only because of Carl’s professional inexperience, cockiness, and bad reputation, but also because of my personal job performance which is crucial for my promotion.
I know that as the senior, I am ultimately responsible for the staff’s work. However, I would try to overcome this challenge by dealing with it differently compared to how Tommy handled the situation. I would be very careful in the kind of assignments given to Carl. Then, I would pay special attention to what he does on a daily basis and try to guide him through the proper actions without looking over his sholder. Since it is time consuming to verify very single detail of Carl’s work at once, I would ask him daily one paged summary of the work he performed.
Also, as the senior audit in charge in the Altamesa audit engagement, before starting the engagement, I would hold a meeting with the audit team to remind them of their responsibilities. According to the Auditing Standards 10 (Supervision of the Audit Engagement), I would communicate the following items with my team, especially Carl: •The objectives of the procedures to be performed. •The nature, timing, and extent of procedures to be performed •Matters that could affect the procedures to be performed or the evaluation of the results of those procedures, including relevant aspects of the company, its nvironment, and its internal control over financial reporting, and possible accounting and auditing issues.
Furthermore, when I evaluate my staff accountants’ performance, I would develop very detailed quantitative performance index, i. e. work time and volume; in addition, I would establish some qualitative performance index, i. e. communication effort or contribution degree for teamwork. I would also announce these performance evaluation criteria clearly to my staff accountants in order to let them know that I am paying attention to the work they do and the quality of which they are performing it.
In many instances, just knowing that you are being closely supervised can improve the performance of the employee. 3. Again, assume that you are Tommy. Carl is badgering you for something to do midway through the Altamesa job. You suspect that he is not completing all of his assigned procedures, but at the time you are wrestling with an important accounting issue facing the client. What would you do at this point? What could you do to confirm your suspicions that Carl is not completing his assignments? Carl completed assignment that allotted 100 hours in 60 hours.
In the previous year, 110 hours had been required to complete the exact same task. This fact will raise a red flag for me indicating that Carl is not doing his job with diligence and due professional care. I believe that giving more work to Carl at this point will not contribute to success of the audit engagement. Hence, I would wait until further decision is made about Carl’s negligence after discussion with Jack Morrison. In order to collect evidence of Carl’s negligence, I would first contact the two senior auditors who have supervised Carl.
They also suspected that he had not completed all of his assigned audit procedures. I would ask those two senior auditors for an advice on what I should do about this situation I am facing. I would also try to find out if they have any evidence that Carl wasn’t doing his job. The main question I would ask the senior auditor is whether they kept record of amount of time Carl spent on each assignment in comparison to allotted time for same job done by other staff accountants. After contacting Carl’s two previous supervisors, I would contact Jack Morrison and explain to him about the situation I am currently facing.
I would explain to Jack about my suspicions that Carl is not doing his job along with record of his time spent on each task in comparison to allotted time spent by previous staff accountants on the same task. I would ask for Jack’s advice on what I should do. The second thing that I would ask Jack is his permission for me to install “Spector CNE employee investigation software” on the workstation that Carl utilize to gather any evidence of his activity during his work hours.
This software will keep track of every website Carl accessed, emails he sent, chat and Instant Message conversation, program activity, internet search records, and the keystrokes. 4. Now, assume that Jack Morrison is reviewing the Altamesa workpapers. To date, you (Tommy) have said nothing to Morrison about your suspicions regarding Carl. Do you have a professional responsibility to raise this matter now with Morrison? Explain. Yes, I believe that I have professional responsibility to raise this matter about Carl not performing his tasks with diligence and due professional care.
This fact will bring in question about two general auditing standards of an Audit. Competency of Carl as staff accountant as well as his professionalism in accordance to AU section 230. AU 230. 01 states that “The auditor must exercise due professional care in the performance of the audit and the preparation of the report. ” AU 230. 02 ” requires the independent auditor to plan and perform his or her work with due professional care. Due professional care imposes a responsibility upon each professional within an independent auditor’s organization to observe the standards of field work and reporting. AU 230. 06 states that ” Auditors should be assigned to tasks and supervised commensurate with their level of knowledge, skill, and ability so that they can evaluate the audit evidence they are examining.
The auditor with final responsibility for the engagement should know, at a minimum, the relevant professional accounting and auditing standards and should be knowledgeable about the client. 3 The auditor with final responsibility is responsible for the assignment of tasks to, and supervision of, assistants. ” According to AU 230. 1 and . 02, Carl was not performing his duty with due professional care in compliance with the GAAS. Regarding current situation I am facing, not reporting about the misconduct and negligence of duty by Carl will also be negligence regarding my duty to exercise due professional care in performance of audit work according to AU 230. 06. It is also my duty to assign tasks to assistant as well as supervise him or her. 5. Assume that at some point Tommy told Morrison that he suspected Carl was not completing his assigned tasks.
The only evidence Tommy had to support his theory was the fact that Carl had come in significantly under budget on every major task assigned to him over a period of several months. If you were Jack Morrison, how would you have handled the situation? If I was an audit partner on an engagement and the senior told me in confidence that he or she suspected that a staff was not performing the work that they were signing off I would take the suspicion very seriously. According to Auditing Standard No. 0, “The engagement partner is responsible for the engagement and its performance. Accordingly, the engagement partner is responsible for proper supervision of the work of engagement team members and for compliance with PCAOB standards, including standards regarding using the work of specialists, other auditors, internal auditors, and others who are involved in testing controls. ” Therefore, the responsibility or ensuring that adequate audit work has been performed in the audit engagement to issue the correct audit opinion is the parnter’s.
If a team member is not following the audit program there is no assurance that the areas they have tested are fairly stated and therefore, an audit opinion issued based on the work the staff performed has a possibility of being incorrect. In complying with AU sec. 230, “each engagement team member has a responsibility to bring to the attention of appropriate persons, disagreements or concerns the engagement team member might have with respect to accounting and auditing issues that he or she believes are of significance to the financial statements or the auditor’s report regardless of how those disagreements or concerns may have arisen. According to the standards, the senior has a professional responsibility to inform the partner of his concerns and since the engagement partner is ultimately responsible for the engagement and audit report, he has a professional responsibility to treat the situation seriously and take investigative and corrective actions. Morrison would have experience with staff being under-budget and probably has encountered this issue in his past experience and would have an intuition about the situation.
Morrison should closely review the staff’s work and even follow up behind him to ensure that the work he says he has done has actually been performed. This can be done by reviewing the staff’s emails and talking to people that he was directed to gather audit evidence from. If he suspects that the work has actually not been done, then the team should take actions necessary to ensure that the audit areas assigned to the senior are fairly stated and do not pose a risk to the financial statements being materially misleading.
If the work cannot simply be re-performed, Morrison should develop alternate procedures to test the specific areas where an insufficient amount or work has been performed to remain in accordance with AS No. 15, “The objective of the auditor is to plan and perform the audit to obtain appropriate audit evidence that is sufficient to support the opinion expressed in the auditor’s report. ” 6. Your team has worked from 8:30 am until 8:30 pm on the revenue cycle.
The audit steps were budgeted for 8 hours and the manager asks each of you to input your time for the day at 8 hours so the time does not exceed the budget. What does your team decide to do and why? The team should report the amount of time that they have actually spent working on the revenue cycle. This is for a number of reasons: •There could be a problem with the revenue cycle and going over budget could be an indication of a red flag.
The client may have given the auditors unorganized information or missing information, or information that could not be verified which could also be an indication of a red flag or that the client needs to be billed for the extra time because of inadequate preparation for the audit. •If an auditor is inexperienced with the area or is having more trouble with the area, the auditor needs to be trained and supervised more closely to ensure that there are no problems with the audit area and to ensure that the auditor gains enough skill to adequately audit the area.